Graeme Wearden 

Wall Street joins market selloff as trade war hits US economy – as it happened

Financial markets hit as tensions between Beijing and Washington escalate, and fears of a no-deal Brexit rise
  
  

Traders on the floor of the New York Stock Exchange today.
Traders on the floor of the New York Stock Exchange today. Photograph: Brendan McDermid/Reuters

And finally...stocks have closed lower on Wall Street, as investors prepare for relations between the US and China to remain bumpy.

The Dow lost more than 1%, or 286 points, to end at 25,490. The S&P shed 1.2% while the Nasdaq lost 1.5% as tech stocks bore the brunt of the declines.

Here’s our write-up of the day:

Goodnight! GW

Aid programme to help US farmers through trade war

Trade wars are so good and easy to win that the US government is <checks notes> giving farmers a $16bn aid package.

AFP has the details:

United States on Thursday unveiled a new $16 billion aid package to help farmers caught in the crossfire of President Donald Trump’s trade war with China.

Agriculture Secretary Sonny Perdue said the bulk of the funds will go to direct payments to farmers, while a small portion will be used to purchase food to use in US aid programs like food banks and school lunch programs.

“The plan we are announcing today ensures farmers do not bear the brunt of unfair retaliatory tariffs imposed by China and other trading partners,” Perdue told reporters in a conference call.

“Farmers would rather have trade than aid but without the trade they are going to need some support.”

Updated

China’s call today for America to fix its ‘wrong actions’ has worried investors, and made them realise that the trade war may not end for some time.

Marketwatch says:

U.S. investors are beginning to adjust to the idea of a protracted standoff between the U.S. and China as increased trade friction have continued to weigh on the broader market and the technology sector in particular.

Weakness in global markets spread to the U.S. as investors digested the implications of new U.S. export restrictions placed on Chinese telecom firm Huawei Technologies Co., with The Wall Street Journal reporting that U.K.-chip design company Arm Holdings was halting business with Huawei, sparking volatility overnight.

There’s no relief from the selling on Wall Street, in early afternoon trading.

The Dow is still down just over 400 points, or 1.5%, while the tech-focused Nasdaq is down almost 1.9%.

The news that US factory growth has hit a nine-year low hasn’t cheered traders, who remain anxious about the tech ‘cold war’ breaking out between Washington and Beijing.

U.S. Secretary of State Mike Pompeo has ratcheted up the pressure on Huawei, dismissing the company’s claim to be independent of Beijing.

Pompeo told CNBC that the company is “deeply tied” to China, and also the Chinese communist party.

“To say that they don’t work with the Chinese government is a false statement. The Huawei CEO - on that, at least - isn’t telling the American people the truth.”

That’s another sign that relations between the two sides are far from strong.

European markets close

Ouch! European traders have been left reeling from another day of trade war tensions.

The FTSE 100 has just closed down 103 points, or 1.4%, at 7231. Engineering firm Babcock was the worst performer, shedding 9% - yesterday it warned that profits would be down this year.

Holiday firm TUI lost 5% -- amid no-deal Brexit worries, and forecasts that more British holidaymakers will stay at home this year (especially given the pound’s recent problems).

There are heavier losses elsewhere, with Germany’s DAX and Franc’s CAC 40 both losing more than 1.7%.

US factory growth weakest since 2009

I missed this earlier (sorry!)..... but US factory growth has slumped to its lowest rate in over nine years.

Today’s report from Markit (see here) shows that the U.S. Manufacturing PMI fell to just 50.6 this month, from 52.6 in April.

That’s a 116-month low -- helping to drag the overall PMI to a three-year low.

Factory bosses have reported that output, employment and inventory stocks have all slowed, while, while new orders fell for the first time since August 2009.

This all suggests the US economy is stumbling, due to weakness at home and abroad.

Markit says:

New orders were stymied by reports of weaker overall demand conditions and hesitancy among clients to place orders.

The fall in new business was only fractional, but signalled a marked turnaround from the solid rise seen in April. Data suggested that demand from both domestic and foreign clients declined during the month, as exports also fell.

European stock markets are limping to the close, with heavy losses in London, Frankfurt and Paris:

Nearly every one of the 30 companies which make up the Dow Jones industrial average is in the red today.

Tech firms are leading the way, with IBM down 3% and United Technologies losing 2.6%.

Oil companies are also tracking the slump in the price of crude, with Chevron and Exxon both losing around 2.2%.

Weak economic data from Germany today is helping to pull markets down, says David Madden, market analyst at CMC Markets.

He points to this morning’s PMI report, showing German factories are still shrinking.

European stock markets are suffering today as the US-China trade tensions have increased. There are no planned meetings between both sides, and that is sending out a very negative message. The 90 day delay in relation to the Huawei ban helped stocks at the start of the week, but that now feels like a long time ago.

It appears that all the progress that was made throughout 2019 has gone up in smoke in a few weeks. Adding to the selling pressure was the dreadful manufacturing numbers from Germany. If the powerhouse of Europe is suffering, that is likely to ripple out across the region.

The sight of Wall Street plunging into the red hasn’t helped nerves in the City.

The FTSE 100 is now down 110 points, or 1.5%, while France’s CAC has lost almost 2% of its value.

Economic growth fears are pushing the oil price even lower - it’s now down 5% today.

That cuts the US crude price to $58.23 per barrel, and Brent crude to $67.80.

US company growth hits three-year low as trade war bites

NEWSFLASH: Growth across America’s private sector has shows sharply to a three-year low, as trade tensions batter the economy.

Data firm Markit’s Flash US purchasing managers index (PMI) which measures activity at services sector firms and factories, has fallen to just 50.9 this month.

That’s down from 53 in April, and close to the 50-point mark showing stagnation.It’s also the weakest reading since February 2016.

This is a signal that the trade war with China may be hurting the US economy.

Markit says:

....a struggling manufacturing economy was accompanied by a notable downshift in gear in the service sector.

Companies reported that demand conditions had softened, as new order growth remained subdued. That’s a concerning signal.

Bosses are also pessimistic - business expectations fell to their lowest since the series began in July 2012.

Chris Williamson, chief business economist at IHS Markit, says the slowdown began in the manufacturing sector, but is now spreading to services companies too.

“Growth of business activity slowed sharply in May as trade war worries and increased uncertainty dealt a further blow to order book growth and business confidence. ....

Trade wars remained top of the list of concerns among manufacturers, alongside signs of slower sales and weaker economic growth both at home and in key export markets

Updated

Make that 400 points off the Dow!

The DJIA has now sunk by 1.5% to 25,377, as gloom grips the markets.

Wall Street falls at the open

Traders are racing to sell stocks as the opening bell rings out in New York.

The S&P 500 has shed 31 points, or 1.1%, to 2,824, as trade war angst ripples across Wall Street.

The Dow Jones industrial average also took a dive, shedding 304 points or 1.2% to 25,471. This follows the losses in Europe today, and the 1.8% tumble in China overnight.

Investors are increasingly anxious that a “tech cold war” is breaking out between the US and China, after Panasonic froze Huawei out overnight.

They’re also concerned by reports that Washington could add more Chinese firms to its blacklist of companies unable to trade with US companies.

China’s warning that America needs to fix its “wrong actions” if it wants trade talks to resume is also causing jitters.

IMF: Consumers are clear losers from trade war

The International Monetary Fund has just published a blog, warning that consumers are “unequivocally the losers from trade tensions”.

IMF researchers have analysed price data from the Bureau of Labor Statistics on imports from China, and discovered that tariff revenue collected has been borne almost entirely by US importers.

Not by China, in other words, as Donald Trump keeps claiming. According to the IMF’s findings, Trump is simply wrong.

They say:

There was almost no change in the (ex-tariff) border prices of imports from China, and a sharp jump in the post-tariff import prices matching the magnitude of the tariff.

Some of these tariffs have been passed on to US consumers, like those on washing machines, while others have been absorbed by importing firms through lower profit margins. A further increase in tariffs will likely be similarly passed through to consumers. While the direct effect on inflation may be small, it could lead to broader effects through an increase in the prices of domestic competitors.

The blog also warns that the existing US-China trade war has already caused damage, and will probably knock 0.3 percentage points of global growth. Things could get worse too....

Failure to resolve trade differences and further escalation in other areas, such as the auto industry, which would cover several countries, could further dent business and financial market sentiment, negatively impact emerging market bond spreads and currencies, and slow investment and trade.

Trade war jitters are also pushing the oil price down.

US crude has dropped almost 2.5% today to a two-month low, while Brent crude (sourced from the North Sea) has hit a three-week low under $70.

Weaker economic growth would mean less demand for energy - a blow to oil producers, but good news for consumers.

Roberto Azevêdo, director general of the World Trade Organization, has warned that the US-China trade war is hurting the global economy.

Speaking on CNBC, Azevêdo said that “$580bn of restrictive measures” were introduced in the last year, seven times more than the previous year.

This is holding back investors, this is holding back consumers, and of course it is having an impact on the expansion of the global economy.

Everyone loses.... every single country will lose unless we find a solution for this.

Russ Mould, investment director at AJ Bell sums up the day so far:

The markets are not a pretty sight on Thursday with stocks flashing red across the UK, Europe and parts of Asia.

Investors are spooked by how relations between the US and China seem to be deteriorating, spurred by the US putting Huawei Technologies on a trade blacklist.

And there’s worse to come, when Wall Street opens in an hour...

However bad things seem, they can always get worse.

And in the case of the trade war, Donald Trump could create a deeper crisis by imposing additional tariffs on imports of cars from Europe and Japan.

The president decided to hold off these tariffs for 180 days last week, but auto manufacturers remain concerned that Trump sees them as as security risk.

Imposing such tariffs would be a big blow to the global economy, warned economist Willem Buiter of Citi today.

Buiter told CNBC that Germany would be particularly badly hit:

“If we get in a position of tariffs under the section 232 [national security] act that the U.S. is threatening with, for which it has given a reprieve until November, then that would be serious,”

“That would mean tariffs for car imports, for car parts imports, and that would hit Germany the most of any of the large industrial nations. That would be a first-order slap in the economic face,”.

Zhu Huani of Mizuho Bank has warned clients to expect more trade war jitters, as America continues to target Chinese tech firms such as Huawei.

She wrote:

“The stalemate between the U.S. and China looks likely to last longer as both sides continued to ratchet up rhetoric.

“Despite potential significant negative spillover effect this might have on U.S. firms, the Trump administration seems determined to curb China’s rise in technology advancement.

The US stock market is expected to suffer fresh losses when trading begins in two hour’s time.

The Dow Jones industrial average is tipped to fall by almost 1%, with the broader S&P 500 index called down 0.9%.

Germany’s DAX index is on track for its biggest one-day drop since February, Reuters points out.

Donald Trump’s famous claim that trade wars are “good, and easy to win” is looking increasingly mistaken.

A year on, Beijing has not backed down, and US farmers are suffering the impact of higher tariffs on crucial products such as soybeans.

Harvard professor Jeffrey Frankel has written about how Trump’s trade war has backfired “spectacularly”:

His trade war with China has hurt almost every segment of the US economy and created very few winners. The losers include not only consumers but also firms and the workers they employ, from farmers losing their export markets to manufacturers forced to pay higher input costs. Even the US auto industry, which did not ask for Trump’s “protection”, is worse off overall because it has to pay more for imported steel and auto parts.

As a result, Trump has come close to accomplishing something seemingly impossible: tariffs that benefit almost no one. Protectionism is usually explained as the result of special interests wielding disproportionate power. Trump’s tariffs against Chinese goods do not fit this theory. And a theory that does explain them may not exist.

Expert: Brace for a longer, more hostile, technology war

Seema Shah, senior global investment strategist at Principal Global Investors, has warned that the US-China trade war is likely to intensify.

She is sceptical that the impact of the dispute will be limited to only Chinese firms, saying the impact on US business should not be understated.

Several U.S. technology sub-sectors have significant exposure to China via supply chains. For many large U.S. chipmakers, more than 30% of their sales are in China, and for a few that number is closer to 60%. If the U.S. government chooses to roll out this “export control” strategy to more companies, the effect on U.S. tech – and the knock-on effect on the wider market - could be devastating.

But won’t Donald Trump back down, if he sees Wall Street bathed in red? Not necessarily, given wider concerns over China.

“First, when it comes to technology and defence related issues, not only is there a fair degree of consensus across Congress to be tough on China, but many large economies share America’s concerns about China’s practises. Second, U.S. demands around technology and defence will be very difficult to meet given that they are focused on containing China’s aspirations to be a global technology leader, and therefore too existential for China to concede.

“While a compromise on tariffs is still possible, investors should prepare for a longer, more hostile, technology war–with some meaningful collateral damage.”

Markets fall deeper into the red

European stock markets have slumped deeper into the red, as hopes of a trade war breakthrough fade.

Britain’s blue-chip FTSE 100 has now shed more than one hundred points, or 1.35%, in a wide-raging rout.

Germany’s DAX and France’s CAC indices are having an even worse day, down 1.7%, following the losses in Asia overnight.

China’s threat not to resume trade talks with America (see here), the swathe of tech companies ditching Huawei (see here), and rising fears of a no-deal Brexit (see here) are all hitting investor confidence.

The news that eurozone factory output is still shrinking as orders contract (see here) isn’t helping the mood either.

A deepening trade war, and an escalating Brexit crisis, would both hurt economic growth, damage companies across the globe, weaken profits, and hit consumers in the pocket.

Dean Popplewell of trading firm OANDA says investors are much gloomier about the trade war.

U.S equity futures and European bourses are again under pressure, following Asian stocks lower, as Sino-U.S trade tensions show little sign of easing.

The street is now officially worried that what started as a ‘tiff over tariffs’ is turning into a full-blown trade war. U.S Treasuries are steady while the ‘big’ dollar remains King.

Updated

Chinese media up ante in trade war

Chinese state media are ramping up their criticism of America today too, another sign that the trade war is escalating.

My colleague Lily Kuo reports from Beijing:

An editorial in the People’s Daily on Wednesday accused the US of “bullyism”, while a bulletin on the state broadcaster CCTV said the US was “delusional” if it believed “technological bullying” could contain China. “This shows some American politicians are extremely narrow-minded and cannot tolerate the normal pursuit of development and progress of other countries,” the announcer said.

The harsher sentiments appear to be resonating with the public. Earlier in the week, a song written by a former Chinese official about the trade war, set to the tune of a fight song featured in an anti-Japanese wartime film, had been viewed thousands of times on WeChat.

A clip of a CCTV news segment from last week promising that China would “fight to the end” was one of the top viewed posts on the microblogging site Weibo. And last weekend, a CCTV film channel aired a series of documentaries about the Korean war, when Chinese and US forces clashed. “We are using movies to echo the current era,” the broadcaster said on its Weibo account on Saturday.

China: Trade talks can't continue unless US approach changes

China’s Commerce Ministry has raised the stakes in the trade war with America.

Ministry of Commerce spokesperson Gao Feng has declared that negotiations can’t continue unless Washington changes its position, and amends its mistakes.

He told reporters:

“If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.:

Gao then appeared to single out the sanctions on Huawei, saying they are unacceptable:

The U.S. ... crackdown on Chinese companies not only seriously damages the normal commercial cooperation between both countries, but it also forms a great threat to the security of the global industrial and supply chain.

China is firmly opposed to this. We will closely monitor developments and make adequate preparations.”

That sounds like a significant move - is Beijing really refusing to hold fresh talks unless Donald Trump backs down?

Metro Bank chairman under pressure to quit

Metro Bank shares are a rare bright spot across European markets this morning, up nearly 7%. Its shares have jumped more than 80% since successfully raising £375m in a share placing last week.

But it’s not all good news at the challenger bank, which has been warned it will face renewed pressure to give its chairman the boot:

Royal London Asset Management, which holds a 0.39% stake worth approximately £3.1m, said:

“The high number of votes against directors at Metro Bank’s AGM should send a strong and clear signal that many of the company’s shareholders want to see decisive governance reform.

“We support the move by the board to review the contract with InterArch, the company run by the chairman’s wife. However, we still strongly believe that the appointment of a new independent chairman to lead governance reforms would go some way towards strengthening oversight, and restoring investor and customer confidence in the bank.

“We have communicated our views with the company and will continue to engage with the board over the coming months.”

The bank is still nursing wounds from Tuesday AGM, which attracted protest votes across the board. Every resolution attracted at least 7% of votes against, if not more. You can see those votes here.

Asian stock markets ended the day solidly in the red, after Panasonic ditched ties with Huawei and China warned it would “fight to the end” in the trade war with the US.

Bad news for Brits heading to Europe this summer -- sterling is continuing its record-breaking losses against the euro.

Brexit anxiety has pushed the pound down by another 0.2% against the euro again to just €1.1307, the lowest since January.

This is its 14th day of losses in a row - its worst-ever run.

Pound tumbles as no-deal Brexit fears grow

The UK’s deepening political crisis is hurting sterling again today.

The pound has slumped to $1.262 against the US dollar, down another half a cent.

That’s its lowest level since the first week of January, as pressure continues to mount on Theresa May to resign following the resignation of House of Commons leader Andrea Leadsom last night.

Theres’s speculation that May could finally quit on Friday, once today’s European elections are concluded.

Traders are reacting to the prospect that May is replaced by a hard-line Brexiteer who will push Britain towards leaving the European Union without a deal.

Dean Turner, UK economist at UBS Wealth Management, fears a no-deal Brexit would drive the pound down to just $1.15. That would be the lowest since the mid-1980s.

He also thinks it could plunge close to parity against the euro, near a record low.

Turner says:

“Investors should not be complacent about the threat of a no-deal exit, which we believe would take the pound as low as $1.15 and 0.97p versus the euro.”

Ongoing Brexit deadlock will also hurt the economy, he adds:

“Despite mounting public impatience over the process, many top officials and lawmakers remain fearful of the economic damage from a no-deal exit.

“Lingering uncertainty would likely cause firms to delay investment, and keep sterling under downward pressure.”

Updated

Britain’s FTSE 250 has fallen to its lowest level since the end of March, as the market selloff deepens.

The index, which contains more UK-focused companies than the blue-chip Footsie 100, has shed 235 points, or 1.2%, to 19,072.

Consumer-focused firms, and industrial and technology companies are the worst-performing sectors, hit by Brexit worries and the US-China trade war.

TUI slides as Brits favour 'staycations'

Back in the City, shares in holiday firm TUI have now slumped by 5% to the bottom of the FTSE 100 leaderboard.

Brexit fears are partly to blame. The slump in the pound in recent days may be deterring people from heading to Europe this summer, and a no-deal Brexit would disrupt its operations.

TUI is also suffering from a new survey showing that more Britons will choose to stay at home this summer.

A survey of 2,006 domestic tourists from Barclays found that 31% said they were likely to spend more time on holiday in the UK this year, compared to just 8% who said they would spend less time.

Some cited concern over the impact that Brexit could have on foreign travel and family finances.....

Eurozone factories hurt by trade war

Newsflash: European companies continue to suffer from the trade war.

Data firm Markit has reported that eurozone factory sector is shrinking again this month. Output fell for the fourth month in a row, while new orders shrank for the 8th consecutive month.

This dragged Markit’s manufacturing PMI down to 47.7 for May, below the 50-point mark that shows stagnation.

Worryingly, factory bosses are now laying off staff -- manufacturing jobs fell for the first time since August 2014, lost at the fastest rate since November 2013.

In better news, the service sector (which makes up the bulk of the economy) continued to grow, keeping the overall eurozone PMI in growth territory.

Chris Williamson, chief business economist at IHS Markit, fears that the eurozone will only grow by a sickly 0.2% in the current quarter, compared with 0.4% in Q1.

“A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months.

Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern.

South-East Asian countries such as Vietnam are emerging as unlikely winner from the US-China trade war.

Some Chinese manufacturers are reportedly moving parts of their production abroad, to avoid US tariffs.

Paul Donovan of UBS Wealth Management explains:

Vietnam is benefitting from the US tax increases; exports to the US surged. Anecdotal evidence suggests Chinese companies are shifting part of their production to Vietnam, Indonesia and Thailand.

The shift may be small, but if it is the final stage of production the boxes are labelled “made in Vietnam” and trade taxes are evaded.

Trade war worries hit European stocks

European stock markets are taking a bath too, as investors worry about a full-blown trade war.

Germany’s DAX has slumped by 1%, with nearly every share in the red. It’s being dragged down by major exporters such as steel maker Thyssenkrupp, chemicals firm BASF and carmaker Volkswage and Daimler.

Britain’s FTSE has shed more than 50 points, or 0.75%. Companies vulnerable to a no-deal Brexit, such as holiday firm TUI (down 4.6%) are leading the selloff.

Connor Campbell of SpreadEx says:

With the Tory party in turmoil, and Huawei waving goodbye to another supplier, the markets were in a bad way after the bell.

Panasonic become the latest company to deal a blow to the Chinese tech giant, joining EE, Vodafone, Qualcomm, Intel and, most importantly, ARM on the list of firms scaling back or outright severing their relationship with Huawei following the US blacklisting.

Whatever relief was generated by the announcement a 90-day grace period earlier in the week has completely dissipated, as investors fret over the damage this nascent tech Cold War is doing to the chance of a positive outcome to the US-China trade battle.

It’s taken a while, but City economists do seem to have woken up to the fact that the US and China are in a trade war.

Many analysts had confidently expected a deal by now. But those hopes have faded since negotiations all-but-collapsed earlier this month.

Now, economists are calculating the impact if president Trump triggers his threat to impose tariffs on all remaining Chinese imports - including mobile phones and laptops.

Bloomberg is reporting that a full-blown trade war is now looking more likely - almost a ‘base case’ scenario, not a tail risk:

After months of predicting a trade deal between the world’s two largest economies, economists at some of the biggest financial institutions are growing increasingly pessimistic.

Goldman Sachs Group Inc., Nomura Holdings Inc. and JPMorgan Chase and Co. are among those that have rewritten their forecasts as U.S. President Donald Trump threatens to impose a 25% tariffs on around $300 billion of additional Chinese imports.....

Goldman Sachs economists warned that without signs of progress over coming weeks, implementation of the further tariffs could easily become their base case. “While we still think an agreement is more likely than not, it has become a close call,” they wrote.

Asian markets hit four-month lows

Shares in many Chinese firms have fallen sharply today.

The CSI 300 index has slumped by 1.8% in late trading. The technology sector led the selloff, down 3.3% on average, following the news that Panasonic was freezing Huawei out.

Consumer-focused firms and telecoms operators are also among the big fallers.

This has dragged Asian stocks down to a four-month low this morning. Hong Kong is down 1.8%, while Australia has dipped by 0.3%.

Neil Wilson of Markets.com says anxiety over a trade war is building.

Trade is still front and centre for equity markets with the mood looking increasingly downbeat.

It rather seems the US and China are hunkering down for the long haul – a new long march, to borrow the phrase from yesterday.

Panasonic’s decision to ditch Huawei shows that a ‘tech cold war’ is breaking out, says my colleague Martin Farrer.

“We’ve stopped all business transactions with Huawei and its 68 group companies ... that are subject to the US government ban,” Joe Flynn, a Panasonic spokesman, said.

Panasonic joins Google, Intel, Qualcomm and Lumentum among the leading companies to turn their backs on Huawei in what is beginning to shape up as a tech cold war between the US and China.

Introduction: Panasonic adds to Huawei's problems

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Tensions between Beijing and Washington continue to deteriorate, as the crackdown on Huawei adds fuel to their ongoing trade war.

Overnight, Japan’s Panasonic has become the latest tech firm to cut back on its business with Huawei. It’s a response to the White House’s move to ban Huawei from buying technology from US companies without its approval.

Panasonic says:

Panasonic announced in [an] internal notification that it should suspend transactions with Huawei and its 68 affiliates that were banned by the US government.

This latest blow to Huawei comes after two UK mobile operators, EE and Vodafone, decided to launch their new 5G networks without its handsets. Even more seriously, UK chip designer ARM (whose products are used right across the tech sector) has frozen Huawei out.

Foreign minister Wang Yi has hit back against the flurry of attacks on Huawei, accusing the US of “typical economic bullying”, and trying to undermine Chinese firms.

In a hard-hitting statement, he says:

“Some people in the United States do not want China to enjoy the legitimate right to develop, and seek to impede its development process.

“This extremely presumptuous and egocentric American approach is not able to gain the approval and support of the international community.”

Wang also insisted that Beijing will not back down, declaring:

“If the United States is willing to negotiate on an equal footing, then on the Chinese side, the door is wide open. But if the United States opts for a policy of maximum pressure, then China will take them on and fight to the end.”

Investors are getting rattled by the belligerence from both sides. Most Asian markets have dropping overnight - led by a sharp selloff in Shanghai.

Europe is expected to open lower, ahead of new PMI surveys of the eurozone private sector and a healthcheck on German businesses.

City traders will also be watching Westminster closely, as Theresa May tries desperately to cling on as prime minister.

Sterling has already fallen against the euro for 13 days on the trot, and is weaker again this morning.

The agenda

  • 9am BST: Eurozone flash PMI for April
  • 9am BST: IFO survey of German business expectations
  • 1.30pm BST: US weekly jobless claims
  • 3pm BST: US flash PMI for April

Updated

 

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